(New York) The marriage of Capital One, one of the main American banks, with Discover, specializing in credit cards, reshuffles the cards in a sector which continues to develop in the United States, where cash is unlikely to disappear little from the landscape.
The operation, for a total amount of $35.3 billion and expected to be finalized at the end of 2024 or early 2025, is to be carried out by exchange of shares, with a premium of 27% for Discover shareholders.
The new company will be approximately 60% owned by Capital One shareholders, with the remainder going to the financial services company.
Under the terms of the agreement between the two companies, Discover shareholders will receive 1.0192 shares of Capital One stock for each Discover share, a premium of 26.6% to the February 16 closing price of Discover stock. ($110.49).
A merger which must still be validated by American regulatory authorities, but the founder and CEO of Capital One, Richard Fairbank, was optimistic, estimating during an online conference with analysts Tuesday morning that the two companies were “well positioned to receive this approval”.
The acquisition of Discover “adds $218 billion in annual expenses and $102 billion in loans to the Capital One credit card network, allowing us to increase our profitability where it matters,” insisted Mr. Fairbank, specifying also that “additional revenues from synergies were not included in the agreement”.
“It gives us the opportunity to scale quickly, much faster than we certainly would have done growing organically,” said Discover CEO Michael Rhodes, “and if I look at companies with which Discover has the most synergies is Capital One.
“Competitors and partners”
The markets generally reacted little to the announcement concerning the bank’s action: at midday Capital One shares were up 0.67%, at $138.15 on Wall Street. On the other hand, Discover shares gained 14.81%, to $126.86.
Originally a financial subsidiary of the Sears store chain which quickly separated from it, Discover developed in the early 1990s as a credit card network, before being bought in 1997 by Morgan Stanley, which made an independent business again in 2005.
Mainly developed in the United States, Discover is the fourth largest credit card network, behind the three other American groups: Visa, Mastercard and American Express. It is present in more than 200 countries and its cards are accepted in 70 million points of sale.
“They are present in almost all physical points of sale in the United States and on almost all online sales sites. We want to keep the Discover brand. We intend to rely on it to strengthen the network,” explained Richard Fairbank.
The company made itself known in particular by being the first to develop in the United States the principle of “cashback”, which allows credit card users to recover a fraction of the money spent via their card, and to banks and credit card networks to have more data on the spending habits of their customers.
The acquisition will result in several of Capital One’s credit cards moving to Discover’s network, and the bank is expected to continue working with Visa and Mastercard at the same time, particularly given their much larger network at the same time. ‘stranger.
In fact, the company will “be both a partner and competitor to Visa and Mastercard,” admitted Mr. Fairbank, “we have a solid relationship with both, since our beginnings, it is not unusual to see companies to be both competitors and customers of each other.
“We’re talking about a much smaller network than those and we want to give it the opportunity to have the momentum to cross a threshold,” concluded Richard Fairbank.